By Lael Brainard, US Under Secretary for International Affairs
I’m delighted to join Chairman Miller for this discussion, and appreciate his leadership on these issues. We also appreciate the support and leadership of Ranking Member McCarthy. I’d also like to thank Dan Runde and CSIS for hosting this discussion. Dan has been an active proponent of sustaining American leadership in the MDBs, and has brought together a terrific panel of experts for this conversation.
I would like to start by posing a question that is central to the issue of American leadership in the multilateral development banks: What do Americans want for their future?
From recent survey data, and from my meetings around the country with business leaders and workers, we know that Americans first and foremost seek good jobs, which enable us to care for our families, educate our children, and expand opportunities for this generation and the next.
We know that Americans want to compete and win in the global economy, and believe that being the world’s number one economy is an important goal.
We know that Americans want to feel that our national security is strong, and that we are reducing the causes of war, extremism, and terrorism.
And we know that Americans want to retain our national values and continue to serve as a beacon for other countries through our support of transitional and emerging nations, and by lending a hand to the world’s poorest, and to those suffering from disasters and wars.
And Americans want to do so in a way that is cost effective, maximizes results, and creates strong foundations for growth.
This American agenda is not new. These goals have resonated with Americans for many years, and for many generations. And across administrations and across the country, American policy makers and leaders have worked to achieve it.
Today, as we face constrained resources at home and new challenges and opportunities abroad, we must ask which tools, mechanisms, and institutions can help us achieve these objectives while maximizing results for each dollar invested.
And today, just like more than 60 years ago when we helped found these institutions, the multilateral development banks are an essential part of our toolkit to foster growth, create jobs, expand opportunity, strengthen national security, and amplify our resources.
Let me spend a few minutes on four of the core benefits of the MDBs for the United States.
First, as we work to strengthen our economy at home, we know that we must see stronger global growth so that we can export more, expand our businesses, and hire more workers. This cycle of growth helps Americans secure the good jobs they desire and build for their future. The MDBs play a vital role in supporting these interests.
They help finance the development of the hard infrastructure, such as roads, ports, and railways that get our products to new markets, and connect our factories and farms with emerging and developing economies. We know that our businesses recognize the benefits of these multilateral infrastructure investments. I heard this first hand recently from a team at Cargill in Minnesota as they described their expanding international footprint and how infrastructure plays a vital role in getting their products from American farms to factories and then to consumers and families around the world. And we know that these investments make a major difference. The World Bank recently estimated that each additional day a product is delayed between a factory gate and a cargo ship reduces trade by more than one percent. That is why last year alone the World Bank provided $8.4 billion in transport support.
The MDBs also establish the soft infrastructure—the rules and regulations that make markets work by reducing trade barriers, improving property rights, and slashing cumbersome red tape. The export numbers tell this story: over the past decade, our exports to Brazil more than doubled. Our exports to India almost quadrupled. And in some of the emerging markets, such as Turkey, Colombia, and Indonesia, we are growing our exports by more than 200 percent.
The MDBs also help to level the playing field so that U.S. companies have a fair chance to compete. The alternative to MDB financing in infrastructure in many countries in Africa is borrowing from countries like China. In contrast, the MDBs have rigorous safeguards to protect the environment, uphold the rights of vulnerable populations, and combat corruption. And they establish fair and consistent rules that create opportunities for U.S. companies to invest and to compete for contracts.
Second, the MDBs help reinforce and strengthen our national security, and help us deter the causes of extremism and terrorism that Americans seek to thwart. Over the past decade, the MDBs have provided $5.9 billion in reconstruction assistance to conflict countries, underscoring their capacity to help keep the peace and to bring stability to fragile states. In a recent letter to Secretary Geithner, General Petraeus and General McNabb noted the key support of the World Bank and the Asian Development Bank in Afghanistan and called their projects “vital to the success of the U.S. strategy in both Afghanistan and the region.” They were referring to critical projects such as the Ring Road and the Uzbek-Afghan railroad, which are part of infrastructure investments that are rebuilding nearly 2,000 miles of roads so that Afghan security forces can keep the peace by accessing remote regions. These investments in Afghanistan’s stability and reconstruction have generated two million days of employment for unskilled laborers throughout the country and significantly improved crop yields for poor farmers—undermining the recruitment efforts of opium cartels and violent extremists.
National security is also at risk following major natural disasters, such as the earthquake that struck Haiti two years ago or the tsunami that hit Aceh, Indonesia, in 2004. In these areas, the MDBs have established recovery and reconstruction funds to address the urgent health crises, feed school children, and rebuild needed bridges and roads. In Haiti, the Inter-American Development Bank has provided tens of thousands of households access to potable water, and rebuilt schools and roads. Amidst the intense suffering of the Haitian people that I saw when I visited last summer, were projects that helped get people back to work in garment factories, helped generate light using solar lanterns, and helped clear rubble and rebuild.
Third, these institutions help us retain our national values and serve as a beacon by supporting nations that are transitioning to democratic and open markets. We see this today as the African Development Bank and the European Bank for Reconstruction and Development are poised to support the historic transformations in the Middle East and North Africa. The success of these transitions will depend on whether democracy delivers on its promise of freedom and opportunity. By investing today in the MDBs, we likewise will secure brighter futures for the generation gaining voice in those countries, and for Americans as their markets open wider and we strengthen and build economic, political and security linkages over time.
We know this potential can be transformed into powerful results because we have seen it happen in recent years thanks to American support of the MDBs. Think back to the major transitions that took place over the period from 1988 to 2008. This period witnessed the fall of Communism in Central and Eastern Europe, the emergence of democratic governments and market economies, the financial crises in Mexico and Asia, and the financial crisis of 2008, just to name a few. Across this intense period of political change, growth, opportunity, and crisis, the World Bank put to work $420 million from the United States as part of the Bank’s last general capital increase, to enable $325 billion in development investments over two decades, helping to transform economies and deflect the worst effects of economic crises.
Finally, I’d like to say a few words about the leverage and results of the MDBs and why our leadership matters.
Our investments through the multilateral development banks provide a greater return for U.S. taxpayer dollars for foreign assistance than any other investment. Our contributions to these banks account for only 5 percent of the U.S. foreign assistance budget but mobilize funds that total more than one and a half times the entire per annum foreign assistance budget and generate immense results. As we face continued resource constraints, this leverage matters greatly for our ability to impact global development. No one nation, no matter how powerful, can meet all of today’s challenges alone. Through the burden-sharing arrangements we negotiate in the MDBs, the many other countries that also have strong interests in these goals pay their fair share thereby greatly multiplying each dollar we invest.
But the numbers are only part of the story. Our leadership is also essential because of our ability to have an outsize influence as leading shareholders at these organizations. At the World Bank, we currently have a veto over changes to the Articles of Agreement, which govern Bank membership and leadership, among other issues. At the African Development Bank, we have our own board seat, and can influence regional development to ensure that there are strict environmental and procurement standards. Other nations, particularly China, are eager to take up our shares in these institutions if we do not meet our commitments.
When the United States helped create these institutions, we did so in order to reduce trade imbalances, blunt Communism and economic nationalism, restore growth, and assist countries undergoing transitions to peace and economic stability. Today, we need these institutions to play the same role that we created them for more than 60 years ago. But the world is vastly different in 2011 than it was in the 1940s. We face greater competition to our influence and ideas, we have fewer resources, and we confront threats that are greater and more complex. That is why our support for these institutions has to be sustained across our government in a bipartisan manner. 1988 offers a powerful example. It was President Reagan who advocated for the last general capital increase for the World Bank that year but it was a Democratic Congress that approved it.
Today, with Chairman Miller’s participation, and with the panel that will follow, you can see that bipartisan legacy thrive. We can also see it in the support of organizations such as the Bretton Woods Committee, which yesterday released a letter signed by numerous global leaders, including Henry Kissinger, George Schultz, Brent Scowcroft, and Paul O’Neill, calling for Congressional support of the MDBs. And we can see it in similar letters submitted by the Chamber of Congress, the U.S. Global Leadership Coalition, and military officials.
The challenge now is to continue working together to sustain our leadership and support of these banks despite the challenges we face. We appreciate the recent Senate action in support of these programs, and we appreciate Chairman Miller and Ranking Member McCarthy’s support, and we look forward to working with Congress to maintain America’s leadership during this vital period. We know that Americans want the benefits that the MDBs deliver to our nation and to the world, and we must continue to support that agenda.